Day trading profitably requires Reading the Tape. Reading the Tape is a skill. It’s a skill that can be learned. However, it doesn’t always come easy to the beginning or underperforming traders. Listening to Simon is tape reading in its purest and simplest form. Learning to Read the Tape in a manner that simplifies your thought process frees you from the emotionally binding biases that can hold you back from becoming a consistently profitable day trader. What questions are you asking? What process are you running through?
Stock ABC opens higher with a 3% gap, above prior resistance, and immediately exhibits strength by consistently setting new highs for the first 20 minutes. The SPY has traded in a 30-cent range during this time. I make a few quick mental notes: relative strength strong, yes; trading lower left to the upper right on the chart, uptrend, yes; get long, yes… but how? Buy the next high or wait for a pullback?
Let Simon tell you! Listening to what Simon (your screen, the tape) says will allow you to quickly and accurately access the risk/reward and type of trade you are about to enter. Has it set new highs consistently on the one-minute chart? If so, Simon is telling you the buyers are aggressive and offers are being taken. Is it a stair step on the one-minute chart with obvious pullbacks? If so, can you bid for your entry? Is there size moving on the level two or is the bid showing no size but the bid eats shares at a certain price? Is price stalling at size on the offer or chewing right through?
I use this type of simple, quick analysis to help define the entry, risk/reward, and type of trade. It helps prevent the pitfall of my pouring a huge amount of intellectual currency into the trade, thereby keeping bias buried in the backyard. Without bias my ability to take a loss or manage a winner is enhanced. I just read and react to what the tape is telling me. Is your mind processing like this?
If you are struggling to be consistently profitable, you need to learn to Read the Tape. It’s not rocket science, but trying to figure it out by your self is hard. In order to be a profitable trader day in and day out you must master operating in a sea of probabilities. Are you giving yourself the best probability of succeeding if you’re not reading the tape?
Jeff Davis